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April 18, 2012

Citigroup’s Pandit Rebuffed Despite Record Revenue

CEO fails to feel the love at company’s annual shareholder meeting

Citigroup CEO Vikram Pandit. (Photo: AP)

Call it a nod to shareholder activism. Citigroup under the leadership of Vikram Pandit announced record revenue on Monday, earning investors $0.95 per share. Nonetheless, just one day later, at its annual meeting in Dallas, shareholders rejected his pay package worth $15 million.

At an otherwise routine meeting, the only point of contention was the pay package, with over half of attendees voting ‘nay.’ Pandit’s not alone, and other pay plans of top officials will most likely be affected. The vote is non-binding, but Citigroup chairman Richard Parson said the board will discuss the shareholders' concerns. Michael O'Neill replaced Parson as chairman after the meeting in a move announced in early March.

The rejection might in part be the result of the bank’s failure of its most recent stress test. Citigroup was one of four large U.S. banks that flunked stress tests on how they might hold up in a new economic crisis, according to Federal Reserve data released March 14.

Citigroup said at the time that it remained among the best capitalised large banks in the world and called on the Fed to make the methodology of the test public.

But it also said it would revise its capital plan, which included a divdend increase the Fed objected to.

Speculation has also arisen as to the fate of its joint venture in Smith Barney with Morgan Stanley. Glenn Schorr, a Nomura Holdings analyst, caused a stir in late march when he wrote in a letter to clients that Citigroup CFO John Gerspach and COO John Havens indicated that they would be willing to sell more than the scheduled 14% stake in the venture if Morgan Stanley was interested.

Morgan Stanley has the option to buy a 14% stake in its joint venture with Citi in May, increasing its ownership to 65%, and can purchase the business outright over the next two years. In 2009, Morgan Stanley bought a controlling stake in the venture, which has more than 17,000 advisers and $1.65 trillion in client assets.

But observers note Citigroup’s stake in Smith Barney is profitable for the company, and while Gerspach signaled a willingness to sell in comments he made on a call with analysts Monday, Pandit was more opaque, adding that “Having said that, the capital numbers we are at and the progress we’re making in the business suggest that there is not a need to sell, either, which is important to appreciate and understand.”